Does your candidate understand basic economics? (Guest column)

"What is their vision of the role of government as it relates to economics?," ask GVSU economist Brian Long.

Brian LongMLive Media Group file photo

GRAND RAPIDS, MI -- Brian Long is the director of Supply Management Research at Grand Valley State University.

Every month, he sends out a report that offers a snapshot of business conditions in Southwestern Michigan and Greater Grand Rapids, based on answers from purchasing managers on eight factors.

His last report showed conditions were "flat" for the third month in a row, which Long says is an indicator of an "economic slowdown, not a recession." One reason for the slowdown is that "extreme uncertainty" has businesses holding off hiring and committing resources until after the election.

The election season is when Long climbs onto to "his soapbox" to complain that for all campaign talk about the economy, many candidates don't really understand it. MLive is sharing Long's take on things as a guest column.

By Brian Long

Does your candidate understand basic economics? Most say they do, but they really don’t. We live in economy that is based on markets, many of which are seldom static. Locally, we have seen gasoline at the pump range from $1.36 to $4.56 in just the past four years. When governments tried to control the prices like they did back in the 1970’s, we ended up with long lines of cars at the pumps, and chronic shortages. Our national productivity fell dramatically, and eventually, no one thought they were better off letting the government try to regulate prices. Beware of any candidate that thinks they are going to “regulate” the market.

For another stretch, does your potential candidate understand global economics? Ever since the widespread use of steamships in the mid-1800’s, America markets have been progressively influenced more and more by foreign markets. Especially in the past fifty years, the growth of foreign trade has been huge. Foreign trade now impacts our economy all the way down to the local level.

Do they think two dimensional or three dimensional? Two dimensional economic thinking worked great when America dominated the world markets in the years following WWII. Passing laws had few global repercussions. But today, we live in a three dimensional worlds. We now no longer control the international markets.

A simple example: Blocking trade from China sounds like a good idea to some people, but China has been the biggest financier of our international debt. What if it resulted in China dumping our debt on the open market? Such an action would drive our dollar down, interest rates up, inflation up, and run our unemployment rate up to 20 percent. To paraphrase Isaac Newton, to every force or action there are often several reactions.

Do they understand the basic math of taxation? The tax effectiveness factor (TEF) measures the difference between the projected amount that taxes are raised verses the net contribution to the bottom line.

If the tax is relatively small like putting coins in a parking meter, most people will pay it. But when the taxes are large, they hire accountants and tax attorneys to minimize taxes. In recent years, we have seen dozens of examples of states, municipalities, and other government units posting significant tax hikes only to find that it drove taxpayers away in droves resulting in no gain in total revenue.

Do they understand debt? Our country, as well as most of the western world, has become obsessed with debt. Running up balances on credit cards has become the national norm for about 64 percent of the American population. Interest and penalties on these unpaid balances my run as high as 3 percent.

However, about 5 percent of the adult population still does not use credit cards, and 31 percent pay them off every month and carry no balances. Taking into account the whole economic system, where does the money come from for the 64 percent to borrow? Obviously, most it comes for the aforementioned 31 percent, aka, the “rich” people. In fact, credit cards are one of the best examples there is of reverse income redistribution.

The rich people loan the money to the 64 percent of the population addicted to overspending. In the form of interest payments, some low income people may actually be transferring 10 percent of their income back to the people that already have lots of money. At the international level, we are transferring our wealth to the Chinese so that they will become richer.

Do their claims or promises match their office? An extreme example would be a county commissioner candidate promising to do something about the bridge to Canada. The roles of 82 of the 83 county commissions have very little or nothing to do with the bridge to Canada.

What is their vision of the role of government as it relates to economics? There is little controversy that successful economies require successful governments. Indeed, it can easily be argued that the success of our democratic form of government is responsible for our economic success.

The perpetual question is often how much government do we need to maintain a successful economy. Paul Samuelson, author of the most successful economic book in history, referred to the trade-off of “guns and butter” to pose the problem of resource allocation between the public and private sectors.

So far, we have done a pretty good job of balancing the role of government to maximize economic growth. But keep in mind that governments run on taxes, and expensive projects require taking money away from the private sector. The same is true of government workers. In most cases, it takes the taxes from several taxpayers to pay for just one government worker.

Jobs. If I hear this word one more time in a campaign ad, I think I will scream. My point is simple: Does your politician really have any idea of what it takes to create jobs? What does it really take to get companies and firms to hire more people? How do you attract new employers to the area, given that every other state and city is trying to do the same thing? Along those same lines, do they know how to keep from lost jobs?

The jobs we have lost in Michigan in recent years have largely gone to other states, not to China or Mexico. The local jobs we have gained in recent months in Michigan have come from the firms that have survived the Great Recession, as well as the successful recruiting efforts of The Right Place and Southwest Michigan First.

A few other things relate to the qualifications of the candidates themselves. First, do they know anything about their elected job? Some years ago, one candidate for a county board admitted that he had never so much as attended a county board meeting. Can you imagine electing a treasurer with no background in accounting? Or put another way, would you elect someone to a higher government office with no background in working for the government or in passing or reviewing legislation? Remember that the road to hell is paved with good intentions. Almost every politician in history has believed that their own intentions are good, but many have failed.